BEHAVIOURAL BUREAUBY NUDØ (BEHAVIOURAL DESIGNERS)

Usually when we’re in the supermarket we tend to have a certain bundle of products that we purchase simply by habit, and others that have to go through an evaluation phase before we decide to actually buy them. We commonly take the decision to buy these products in two different ways: a) When we evaluate the product we take into account the attributes that the brand offers, this is called the category effect; and b) We take into account only the products’ tangible characteristics, this is known as the ranking effect. These 2 effects are the reference that we have to properly evaluate products. Depending on how we buy a product, we’ll have a different evaluation of it; either we transfer to it the value and characteristics of the brand or we take into account the attributes that put it in a certain rank of its own category. These weighting applies to any product like clothing, electronics, musical instruments, etc.

Evaluating a product using the ranking effect is easier, regardless of its actual value. For this reason, sometimes people tend to evaluate more favorably a product of a lower price and a higher quality in its category than one with a higher price and a lower quality in a better category (rank). For example, lets imagine Irrational Cosi wants to buy a gift for his girlfriend. He is undecided between buying a smartphone of the best quality that costs $500 or buying a tablet of a low quality that costs $500. Irrational Cosi probably evaluates the products under the ranking effect and ends up buying the smartphone (and his girlfriend will most likely be happier with that decision), but is a cellphone better than a tablet?.

This behavior occurs even when there is clear information from other categories that allows a direct and easy comparison. Leclerc, Hsee y Nunes (2005) call this “narrow focusing”, because people prefer to focus on the category that a specific product belongs to, in other words, people prefer to narrow/simplify information.

To prove this, Leclerc, Hsee y Nunes (2005) carried out an experiment where three groups of students were asked to imagine that they were going to buy a car. The first group had a list with four models of Volkswagen and four Audis. The horsepower in the Audis varied from 190 to 300 and the horsepower in Volkswagens form 100 to 190. They were told they had to choose between the Audi A4 (the lowest model in the high status category) and the Volswagen Passat V6 (the highest model in the low status category). They knew each car costed around $30,000, and they were asked to disclose how much they were willing to pay for each one. The second group had only a list of four Audi models and were told they were interested in the A4 (the lowest model in the high status category), and had to value it. The third group had a list with four Volkswagen models and were told that they were interested in the Passat V6 (the highest model in the low status category), and were asked to value it.

The first group showed they were willing to pay more for the “worst” Audi ($24,742) than for the “best” Volkswagen ($23,953); The interesting thing occurs when there is no reference point, as the third group was willing to pay more for the “best” Volkswagen ($24,855) than for the “worst” Audi ($22,879).

The first group demonstrated the influence that brands have as reference points of what we desire. But the second and third group demonstrated how we are inclined to better evaluating a product of a lower price and a higher quality within its own category, compared to one of a higher price and a lower quality within its category. When a separate evaluation is made, we use the category, and what’s in it, as point of reference, as we focus in only one subset of information.

Be careful however, this doesn’t mean that if we have a product of less quality (compared to another brand) we have to isolate it or force the comparison against another with less quality; it simply means that we can compare it against ourselves (not necessarily against the competition), or we could simply create a new category in which Irrational Cosi can perceive it as the best in its category, assigning that way more value to our product.